The proposed requirement for SMSFs to develop a retirement income strategy is not expected to be a major issue for trustees to implement, though planning for longer periods may have some repercussions, an SMSF specialist adviser has said.
In December 2016, a discussion paper on comprehensive income products for retirement (CIPR) was released for consultation, resulting in the assessment the retirement phase of the super system is currently underdeveloped and needs to be better aligned with the overall objective of super of providing income in retirement to substitute or supplement the age pension.
Following the 2018 federal budget, the government released “The Retirement Income Covenant Position Paper: Stage one of the Retirement Income Framework”, of which the majority applied to Australian Prudential Regulation Authority (APRA)-regulated funds.
The paper said development of a retirement income strategy would be the only principle that would apply to SMSFs.
“If SMSFs are required to develop a retirement income strategy, I don’t think this would be a major issue as I know with most clients we sit down each year, we look at the income and returns in the fund and assess whether the asset allocation is correctly set to ensure we have money available in liquid investments to cover three to five years’ pensions should there be a market correction,” Verante Financial Planning director Liam Shorte told selfmanagedsuper.
“Having to plan for a longer period would be adopted fairly easily, but it may start restricting the investment options of the trustees and may defeat the purpose of having an SMSF.
“Remember, having an SMSF is not about getting better returns only, it is often about having the feeling of control and flexibility to increase people’s confidence to lock their hard-earned savings in to the long-term superannuation environment.”
Meanwhile, Rice Warner today provided its submission to Treasury in relation to the government’s position paper.
The research firm identified several potential issues with the structure and implementation of the proposed CIPR framework.
“We would question why those in SMSFs will be required to have a retirement income strategy but will not be required to consider a CIPR product,” the submission said.
“If, for example, this exclusion is due to the relatively high balances of those in an SMSF, then we would suggest that a similar exclusion be provided to those with similarly high balances in APRA-regulated funds.
“This exclusion of SMSFs could potentially result in increased movements of members to SMSFs even if these products are not considered suitable, if some level of (unpopular) compulsion to purchase were applied to CIPR products in future.”
Shorte said he understood the CIPR option would be like the default option, there to cater for people who are unengaged and/or want a simple solution for their retirement income from super with or without the need to engage advice.
“Most SMSF members and many other superannuation account holders are a lot more engaged and regularly planning and reviewing their retirement funding options,” he noted.
“If a decent CIPR product became available that offered the flexibility currently enjoyed by SMSFs with a decent rate of guaranteed return, then I am sure some SMSFs would look at the option for a portion of their retirement funds.
“However, I feel it is unlikely they would relinquish control of their entire portfolio or lock all their capital away.
“Distrust is growing among all superannuation members as each successive government tinkers with the rules, so I cannot see any truly engaged or active superannuation account holder trusting one product with their savings.”
